The Philippines
Income Tax Rate
5% - 32%
Corporate Tax Rate
30%
Sales Tax/ VAT rate 12%
Personal Income Tax
Income of residents in Philippines is taxed progressively up to 32%. Resident citizens are
taxed on all their net income derived from sources within and without the Philippines.
For nonresident, whether an individual or not of the Philippines, is taxable only on income
derived from sources within the Philippines.
Taxable Income (PhP)
Php 0 – 10,000
Php 10,000 – 30,000
Php 30,000 – 70,000
Php 70,000 – 140,000
Php140,000 – 250,000
Php 250,000 – 500,000
Php 500,000 and above
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Tax Rate
5%
10%
15%
20%
25%
30%
32%
The above rates apply to individuals who derive income from business (including
capital gains from the sale transfer or exchange of shares in a foreign corporation) or
from the practice of a profession.
Individuals holding managerial and highly technical positions employed by RHQs1,
ROHQs2, multinational companies and offshore business units are taxed at 15% on
their gross income.
Income in Philippines is divided into the following three categories which are taxed
separately, as summarized below.
1. Compensation employment income: This income is taxed at progressive rates on gross
income after deduction of personal and additional exemptions but without deductions for
expenses.
2. Passive income: This income, including dividends and interest, is subject to tax at 7.5%.
3. Business income and professional income: This income is taxed at progressive rates on net
business income after deduction of certain specified expenses.
1
Regional Head Quarters
2
Regional Operating Headquarters
Corporate Tax
The corporate income tax rate both for domestic and resident foreign corporations is 30%
based on net taxable income. Excluded from the income tax are dividends received from
domestic corporations; interest on Philippine currency bank deposit and yield from trust
funds. It is important to note that foreign corporations, whether resident or nonresident, are
taxable only on income derived from sources within the Philippines.
Withholding Tax
Types of taxable income
Dividend
Interest
Royalty
Technical Fee
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Tax rate
(For non-resident)
15%3
20%
30%
30%
All other taxable income earned by domestic and resident foreign corporations is
subject to a 20% final withholding tax. However, Regional operating headquarters are
taxed at 10% on taxable income. Special economic zone enterprises duly registered
with the Philippines Economic Zone Authority are taxed at the rate of 5% on gross
income.
The net capital gains from the sale of shares of stock of a domestic corporation are
taxed on a per transaction basis at the rate of 5% on the first PhP 100,000 and 10% in
excess of said amount. On the other hand, the sale of shares of stock of a domestic
corporation through the Philippine Stock Exchange or through the initial public
offering is subject to a percentage tax on the transaction at the rate of 0.5% of the
selling price.
The sale of land, building and other real properties classified as capital asset is subject
to 6% final capital gains tax based on the gross selling price.
Any branch profit to be remitted to the Head Office is additionally taxed at the rate of
15%.
Value Added Tax/ Sales Tax
A 12% value added tax (VAT) of the gross selling price is imposed to all importation, sale,
barter, exchange or lease of goods or properties and sale of services.
The term 'Gross selling price' means the total amount of money or its equivalent that the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value added tax.
3
Dividends received by non-resident foreign corporations from domestic corporations are subject to a
final tax of 30 %.
Tax Incentives for SMEs
1. Direct Tax
Tax incentive for importers and exporters
- Tax credits are available for taxes and duties paid on purchases of raw materials of
products for export, domestic capital equipment, domestic breeding stock and
genetic materials.
- A tax credit of 25% of the duties paid on raw materials and capital equipment
and/or spare parts.
Tax incentives also available to enterprises registered with the Philippine Economic
Zone Authority (PEZA). These incentives are shown below:
-
4 to 8 years income tax holiday. A 5% tax on the modified gross income is
imposed after the end of the income tax holiday.
Tax and duty exemption on imported capital equipment and raw materials.
National and local tax exemption.
Tax rebate for the purchase of domestic capital good.
2. Indirect Tax
Under the Investment Priority Plan (IPP), SME owners shall be eligible for the
following incentives.
-
An exemption from wharfage dues and export tax, duty import and fees.
Additional deduction for labor expense (ADLE).
Additional deduction for necessary and major infrastructure works.
Excise tax on exported goods produced or manufactured locally can be credited or
refunded upon submission of the proof of actual exportation and upon receipt of the
corresponding.